Consider IP As Collateral For Bank Loans: Par Panel to Govt

n the early stage of the business, what all most of the startups have an IP worthy idea equivalent to an intangible asset. If the banks start treating Intellectual Properties (Ips) as collaterals for loans from banks, the ease of doing business would improve manifold times for the budding startups. 

Can Startups Keep IPs As Guarantee For Bank Loans?

This can soon be a reality as the Parliamentary Panel on Commerce has recommended the Government to create a Task Force to bring together stakeholders such as RBI, banks, industry, chartered accountants, etc on a single platform to consider the gaps in the policy so that IP can be treated as collateral for loans from banks. 

The Parliamentary panel also recommendations and urged the government to take steps towards generating awareness and better understating of IP financing, valuation and monetisation of intangible assets and encourage adoption of non-traditional forms of collateralisation and securitisation by financial institutions in consultation with relevant stakeholders. 

Are IPRs The New-Gen Intangible Assets? 

The Department Related Standing Committee on Commerce in its report on demand of grants of Department for Promotion of Industry and Internal Trade (DPIIT) said it was informed by industry stakeholders that Intellectual Property Rights (IPR) have emerged as a new form of intangible asset, which are treated as the principal constituent of the total assets of a company. 

The Committee however noted that the IPRs currently are not being used as collateral for securitised loans from financial institutions and venture capitalists. Also, banks do not offer loans against IP as there is no clear-cut policy on lending for IPs. 

Moreover, companies especially SMEs and Startups find it difficult to take their ideas and IPR to market for want of funds. While taxation and other laws exist for valuation of intangibles assets, in practice many gaps remain with regard to valuation of IP. 

The report highlights that there needs to be clarity and uniformity in the methods adopted for valuation of Intellectual Property which will boost the confidence of lending institutions in extending credit based on intangible IP assets. 

In its earlier Reports too, the Committee had already taken up the matter related to IP financing and has recommended the Department to take appropriate measures. However, no concrete action has been taken by the Department till date.

The Committee was also informed that the importance of IPR in trade, manufacturing, research, etc. and to the economy of the country as a whole could not be ignored. As such, there is a strong need to create institutional mechanism to enable engagement, on a continuous basis, in the study of issues related to IPR through in-house research, sponsored research, discussions, and conferences. 

Data & Reports Related To IPs Should Be Created

The Parliamentary Panel said that the institution should also be mandated with the task of generating data, reports, advisories, and position papers related to IP for use by the Government, industries, R&D institutions, academics, MSME, individual researchers and grassroots innovators. 

It also called for the Department to evaluate the feasibility and benefits of setting up an autonomous body, an Intellectual Property Think and Act Tank, which would be focused towards study of IPR related issues and prepare action plans.

Re-evaluation Of Funding Rules of Govt Sponsored Projects

Furthermore, the panel has also recommended the Government to re-evaluate the extant General Financial Rules (GFR) regarding funding of Government sponsored R&D projects and look into the feasibility of including private industries or companies under the rule.

According to the industry stakeholders, the Government sponsors projects or Schemes, undertaken by Universities, IITs and other similar autonomous organisations such as the ICAR, ICMR, CSIR, etc. come under Rule 233 of the General Financial Rules 2017.

As per Rule 233, ownership of physical and intellectual assets created or acquired out of such funds, vests with the sponsor/Government and on completion of the project, the Government decides whether the assets should be returned, sold, or retained by them. 

The stakeholders also stated that Intellectual Property and physical property, which are inherently different in nature, have been clubbed together for the purpose of ownership. 

The said rule currently does not include private industries or companies for sponsorship of research projects and as such private industries are not eligible for funding under this rule.

It is for this that the Parliamentary Panel has asked the government to re-evaluate these rules.